Tata Mutual Fund has announced the launch of Tata Dividend Yield NFO. The new fund offer period opens on May 3 and closes on May 17. A dividend yield fund predominantly invests in dividend-yielding stocks. To know more about the product, read on. Â
Investing for dividend yield
Dividends are a common way for companies to return capital/share profits with their shareholders. Companies that pay dividends typically enjoy stable cash flows, and their businesses are commonly beyond the growth stage. Dividend yield shows how much a company pays out in dividends each year relative to its stock price.
Dividend yield based investing is one of the oldest methods of equity investments. One of the important techniques to identify the right stocks which can light up your investments is the Dividend Yield.
Almost 20% of the major indices total returns is due to the contribution of dividends and others over the period of 10 years. The high dividend yield investment strategy reflected through Nifty Dividend Opportunities Index returns shows that 37% of the Total returns is due to dividends.
A company’s dividend policy is often seen as a testament to its confidence in future earnings growth and sustainability of the business. In another words, a good track record of dividend payments is a strong sign of reliability and an indication that the company has stable business revenue model with sustainable profit growth expectations.
High dividend yield stocks are more likely to provide greater degree of protection to investors than other stocks in falling equity market. On the other hand, these stocks show good possibilities of capital appreciation in reviving market. An investment in these stocks in volatile market could unlock significant value as and when the markets pick up.
Stock picking on the basis of dividend yield aims to avail the triple benefits of dividend income, downside risk management and potential for capital appreciation.
A careful selection of high dividend yield stocks in portfolio could therefore unlock significant value, providing potential for wealth creation over the medium to long term investment horizon.
Long-term historical returns of dividend-yield funds are about 7-11 per cent.
Tata Dividend Yield Fund
Tata Dividend Yield Fund is an open-ended equity scheme predominantly investing in dividend-yielding stocks.
Tata Dividend Yield Fund has 3 broad investment components of the portfolio:
1. Investments in Dividend Yielding stocks – The scheme shall invest in dividend yielding companies which have paid dividends (or done a buyback) in at least 1 out of 3 preceding Financial years. The scheme would currently prefer to invest in companies with dividend yields higher than Nifty 50 Dividend yield.
2. Contra to Consensus approach portfolio â€“ The fund would actively seek to capture the journeys of companies from Contrarian bets to Consensus bets (Stable companies currently out of favor to being the most preferred stocks in markets).
3. Diversification of Portfolio â€“ The fund also has the flexibility to invest in REITs and InvITs and Overseas securities.
Also, distribution across market cap segment provides flexibility to exploit capital appreciation and dividend income generation opportunities across market cap.
Peaking dividend yields have been a sign of market bottoming and subsequent market performance have been higher.
As per Tata MF, the current falling dividend yield of Nifty 50 can be due to many companies not paying dividend in FY21 due to extraordinary circumstance arising due to pandemic concerns. Nearly 1/5th of the Nifty 50 companies have not paid dividends in FY21.
Going forward, with economic recovery and profit growth, we expect more companies to pay dividends leading to rise in dividend yields.
Also, with recent Monetary policies highlighting RBIâ€™s intention to keep liquidity support and announcement of G-Sec acquisition plan, the yields are expected to be rangebound at the current levels. Lower levels of yields tend to favour dividend strategy.
As equity market witnesses more broad-based recovery, dividend yield companies trading at attractive valuations tend to experience above average growth. Plus, as markets enter a broad-based rally, stocks at attractive valuations and strong fundamentals may provide better capital appreciation opportunities.
Other details of fund
Equity Fund Manager : Sailesh Jain Equity Co-Fund Manager : Rahul Singh; Debt Portfolio : Murthy Nagarajan, Overseas Securities : Venkata Samala
Benchmark Nifty Dividend Opportunities 50 TRI
Min. Investment Amount: Rs. 5,000/- and in multiple of Re.1/- thereafter
Additional Investment: Rs 1,000/- and in multiple of Re 1/- thereafter.
Load Structure Entry Load (During NFO): N.A.
Exit Load: 1% if redeemed before 365 days. On or before expiry of 365 days from the date of allotment: If the withdrawal amount or switched out amount is not more than 12% of the original cost of investment: NIL